Benson Elliot, the UK-based private equity real estate fund manager, has invested close to £100 million in regional towns in recent weeks, demonstrating its continuing confidence in the outlook for the UK real estate market outside of Central London. These new acquisitions take the value of its regional investment and development programme in the UK close to £1 billion. The latest in a series of deals targeting regional UK real estate is 55 Princess Street, a Grade A office building in prime central Manchester, which the Fund has exchanged contracts to acquire.
The firm’s vote of confidence in Manchester reinforces the firm’s regional strategy, which guided the purchase of Phase 2000 of Cambourne Business Park, Cambridge, in June of this year, and the more recent acquisition of the Fishergate Shopping Centre in Preston. Fishergate is an in-town centre that dominates its local catchment, and offers the opportunity for the Fund to use its in-house retail asset management expertise to grow income and create long term value at a time when the still fragile occupier market is showing some positive signs of stabilising.
Benson Elliot’s regional portfolio also includes the Station Hill redevelopment in Reading, acquired in 2010 in joint venture with Stanhope. Designs have been submitted for a five acre mixed-use scheme, which is due to be decided by Reading Borough Council later in the year. If Council approval is secured, construction of the first phase of the project is expected to commence in 2014.
55 Princess Street, Manchester
55 Princess Street is an off-market acquisition from LNC Property, of a recently developed class A office building in Manchester’s Central Business District. The Manchester market is one of the UK’s strongest regional office markets with an average annual take-up of over 900,000 sf vs. class A vacancy below 3%. The Property was constructed in 2008 and provides 51,700 sf of office space arranged over six above grade floors, and 4,100 sf of ground floor retail space. The Property is 36% let and represents an opportunity for the Fund to implement a dynamic marketing and lease-up programme, bringing the building to full occupancy.
Phase 2000, Cambourne Business Park, Cambridge
Phase 2000 of Cambourne Business Park was acquired by Benson Elliot in June 2013 from Aviva Investors. The property comprises three modern Grade A office buildings in an attractive business park close to Cambridge. With 40,000 sf of Grade A availability (vs. over 1.5 m sf of active demand), Cambridge is one of the UK’s strongest and most dynamic regional office markets. The properties are multi-let, high spec office buildings set in an attractive 7.6 acre landscaped area with 549 parking spaces, and offer the potential to grow value through an active asset management programme letting up vacant space and re-gearing existing leases.
Fishergate Shopping Centre, Preston
Benson Elliot acquired the Fishergate Shopping Centre in August 2013 from Deloitte, as administrative receiver for Lloyds Banking Group. Anchoring the eastern end of Preston’s prime retail pitch, the Fishergate centre is spread over 340,000 sf and offers a 750 space car park. It is currently let to a range of tenants, and strongly anchored by Debenhams, Primark, TK Maxx and Argos. The centre offers a number of opportunities to enhance value, in particular by reconfiguring some of the existing space and potentially extending the existing retail footprint.
Commenting on the company’s strategy for investing in the regions, Marc Mogull, founder and Managing Partner of Benson Elliot, said:
“I’ve been interested to see the accelerating interest in UK regional investment these past few months. We set ourselves a quiet target of £1 billion a few years ago, having taken the view that the spread between prime London yields and the best of the rest was getting too wide to be justified by fundamentals. People sometimes forget how little new stock has been delivered outside London over the past few years, and companies are always looking to upgrade their space, even if they’re not able to grow.
“This strategy has allowed us to pick off almost a dozen transactions since then, before the arrival of the herd. Opportunities are still out there, but recent transactions evidence how competitive it’s becoming: instead of no bids we’re seeing best bids, and pricing for anything plain vanilla has moved up sharply. It was inevitable that domestic institutional investors would return to the market when they started rotating out of bonds: they’re seeing the same attractions of higher yields and strengthening fundamentals that we saw.
“On the retail side, investors have been running scared, worried that regional retail has no future in an internet world. Retail is changing, and so retailers and landlords must look to evolve their product further. Not all centres will survive – and the rental levels at which many centres will operate going forward has to fall to reflect their long-term sales potential – but we believe there is selective mispricing in the market, and the potential to create value from the right assets; we’re willing to work our way through the changing marketplace.
“With our in-house capabilities we can invest the time, knowledge and capital to extract value from centres that others may have given up on. We’ve had good success re-positioning the Arcadia site in Ealing. That should re-open next year. Preston is also a good centre, dominant within its local market; it’s a good fit for our approach, and we’re confident we can generate substantial long-term value from it.”